TAX PRO Q: Ordinary income vs. Cap Gains or 1031

[Ziad Almufti]

Hey all, 

I own a boutique glamping hotel. We bought the land in an LLC 18 months ago and immediately began construction.  We opened doors to guests just 4 months ago.  

Our intent going into it was to hold long term.  We now have decided we want to sell.  Question: would our proceeds be taxed as ordinary income, or capital gains?  I'm unsure if the 365 day clock started when we broke ground, or when we welcomed our first guest.  Further, would we legitimately qualify for a 1031?

[Dave Foster]

@Ziad Almufti, I'll let the accounting specific folks respond to whether the gain would qualify as short or long term.  I'm guessing it would be short term ordinary income.

But to qualify for a 1031 exchange you must have purchased that property with the intent of holding for productive use.  The hold period is not the determining factor.  It is your intent that matters and how you can demonstrate that.  You'll want to be able to demonstrate that intent if ever asked.  And I would suggest that since you have a history of fix n flipping you might want to be extra careful to be able to document that intent.